We have found that T cell receptor (TCR) expression and function in developing thymocytes is actively regulated by CD4-mediated signals generated by the interaction of CD4 with Ia+ thymic epithelium. CD4 molecules on the surface of CD4+CD8+ thymocytes are engaged in situ by Ia+ thymic epithelium and transduce intracellular signals that result in: (i) low TCR expression, (ii) tyrosine phosphorylation of TCR-zeta chains, and (iii) inability of TCR cross-linking to induce intracellular calcium flux. Release from these intra-thymically generated inhibitory CD4 signals results in increased TCR expression, dephosphorylation of TCR-zeta chains, and improved TCR signaling. Further, we have found that the molecular basis for low TCR expression in developing CD4+CD8+ thymocytes is a high rate of degradation of newly synthesized TCR components, and that CD4 mediated signals regulate the TCR degradation rate in CD4+CD8+ thymocytes via tyrosine kinase p56 Ick which was shown to be preferentially associated with CD4, rather than GD8, in immature thymocytes. It was also shown that membrane bound protein tyrosine phosphatase CD45, a regulator of Ick activity, can regulate intra-thymic T cell differentiation suggesting a role in thymocyte development for ligands of CD45.